Carmakers expand local production to limit currency exposure

Toyota Motor Corp., Renault SA and Nissan Motor Co. are among carmakers widening their global production footprint to limit exposure to currency risk.

Toyota plans to expand production in Europe to about 75% of sales from 63% to 64% within two years, Chief Regional Officer Didier Leroy said. Its luxury Lexus brand is entirely produced in Japan.

“We want to have a business model that completely frees us from the exchange notion,” Leroy said in an interview at the Geneva International Motor Show.

The yen has depreciated 6% against the euro this year and was trading at 121.56 per euro as of 3:11 p.m. in London after dropping to 127.71 in February, the weakest since 2010. It’s down 7% against the dollar. Still, Toyota’s impact from the exchange rate this fiscal year will be less than 10 million euros ($13 million), Leroy said.

Nissan Chief Executive Officer Carlos Ghosn, who holds the same title at partner Renault, said the yen isn’t in positive territory for Japanese carmakers.

“It’s less of a handicap today,” he said in an interview with Guy Johnson on Bloomberg Television. “It doesn’t mean it’s an asset. They’re more competitive compared to one year ago. It certainly doesn’t make them more competitive compared to four years ago.” The yen reached almost 170 per euro in July 2008.

Localized Production

The market is “very far” from a devaluation of the yen currently, Ghosn told reporters in Geneva today, adding that many carmakers have been relying on one currency for too long.

The current logic is “localize your production” and that trend will continue, he said.

“Currency fluctuations are having a huge impact on where the automakers are choosing to put their production,” Anil Valsan, global lead analyst for automotive at Ernst & Young, said in an interview. “More natural hedges are what automakers are trying to do rather than financial hedging. That’s where the emphasis will be going forward.”

Renault’s Philippe Klein, executive vice president for corporate planning, product planning and programs, said the French carmaker is evaluating how foreign-exchange fluctuations affect sourcing.

“In an ideal world, we would like to be balanced: if I sell in rubles I would like to build in rubles,” Klein said. “We’re trying to reach that objective.”